Responsible Investment Policy

EQ Investors has developed this policy to guide the firm’s approach to responsible investment. This policy has been adopted by the Board for use across the firm and is formally reviewed and updated on an annual basis.

As a signatory of the UN Principles of Responsible Investment, EQ Investors commits to the following statement:

As institutional investors, we have a duty to act in the best long-term interests of all beneficiaries. In this fiduciary role, we believe that environmental, social, and corporate governance (ESG) factors can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions and asset classes and through time).

We also recognise that applying the following Principles may further align investors with broader objectives of society. Therefore, where consistent with fiduciary responsibilities, we commit to the following:

  • Principle 1: We will incorporate ESG factors into investment analysis and decision-making processes.
  • Principle 2: We will be active owners and incorporate ESG factors into our ownership policies and practices.
  • Principle 3: We will seek appropriate disclosure on ESG factors by the entities in which we invest.
  • Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.
  • Principle 5: We will work together to enhance our effectiveness in implementing the Principles.
  • Principle 6: We will report on our activities and progress towards implementing the Principles.

In signing the Principles, we as investors publicly commit to adopt and implement them, where consistent with our fiduciary responsibilities. We also commit to evaluate the effectiveness and improve the content of the Principles over time. We believe this will improve our ability to meet commitments to beneficiaries as well as better align our investment activities with the broader interests of society. We encourage other investors to adopt the Principles.

As a Certified B Corporation, EQ Investors fully supports the B Corp Declaration of Interdependence:

  • We must be the change we seek in the world
  • All business ought to be conducted as if people and place matter
  • Through their products, practices, and profits, businesses should aspire to do no harm and benefit all
  • We act with the understanding that we are each dependent upon another and thus responsible for each other and future generations

This encapsulates our vision of a global economy that uses business as a force for good. We strongly believe that all companies should be purpose-driven and run for the benefit of all stakeholders, not just shareholders.

It is only through understanding the interdependencies of the system – balancing the needs of communities, environment, customers and workers – that we can create a world in which we can all thrive.

This thinking drives the way we run EQ as a business and how we invest.

As one of the founding B Corps in the UK, EQ Investors strongly believes in business as a force for good. Our mission is to create systems change through the power of investments. By making it easy for our clients to invest in businesses that benefit people and planet, we can work together to create a better world.

John Spiers, CEO

Defining responsible investment

EQ Investors defines responsible investing as the integration of environmental, social and corporate governance (ESG) factors into investment management processes and ownership practices in the belief that these factors should be considered when evaluating both investment risk and opportunity. Responsible investing also aims to avoid harm on people and planet and takes responsibility for real world impacts of investment decisions and ownership activities.

EQ’s statement of responsible investment beliefs

  • Sustainable investing characteristics, including systematic ESG integration, can enhance long term investment returns
  • EQ holds a responsibility to avoid harm on people and planet through investments managed
  • Climate change is a material investment risk and opportunity
  • EQ holds a responsibility to provide sustainable investing solutions to suit a range of client preferences

To reflect these beliefs, EQ has developed ‘minimum sustainability standards’ for assets under discretionary management. Further, EQ manages multiple investment strategies that apply higher sustainability intentionality.

EQ’s minimum sustainability standards

EQ’s responsible investment beliefs are reflected in our minimum sustainability standards. While we have managed dedicated sustainable portfolios since 2012. These standards feed directly into external manager selection and monitoring, as well as EQ’s engagement activities. External managers are evaluated in the context of each specific investment style, strategy, and asset class.

1. Avoiding harm: baseline negative exclusions

EQ expects all underlying strategies in our portfolios to adhere to the following baseline negative exclusions:

  • Adult entertainment (>5% revenue)
  • Armaments (>10% revenue)
  • Gambling (>10% revenue)
  • Tobacco (>10% revenue)
  • Thermal coal (>30% revenue or >30% generation)
  • Legally required exclusions (those required by law, bans, treaties or embargoes)

EQ expects these to be:

  • an explicit integration in the relevant investment process via negative screening, or
  • an implicit outcome of stringent positive or thematic screens.

2. Systematic ESG integration into the investment process

EQ believes that integrating Environmental, Social and Governance (ESG) data into investment decision making is in line with fiduciary duties and benefits investor returns. This view is amply supported by the academic and practitioner literature and by our own experience in managing sustainable portfolios over the past 8 years.

EQ expects to see evidence that the following best practices have already been implemented:

  • Managers go beyond ESG integration for risk mitigation by also aiming to capture ESG opportunities.
  • Managers invest in internal resource, focus on materiality, and have sufficient ESG oversight.
  • Managers systematically integrate ESG information into binding investment decision-making: including investment selection, portfolio construction, and sell-discipline.

EQ evaluates all fund managers on the quality and intentionality of their ESG engagement and voting process and will only invest in high scorers. EQ expects all asset managers to use voting rights (where applicable) and engage with company management to:

  • gather information on ESG issues, and
  • drive positive change on identified ESG weaknesses and opportunities.

3. Carbon risk and climate transition risk integration

EQ considers carbon risk and the transition risk posed by a decarbonising economy as material investment risks. It is our aim to keep EQ’s investment portfolios aligned to a decarbonisation pathway aligned with a 1.5°C warming scenario (compared to pre-industrial temperature levels).

EQ expects asset managers to incorporate climate change contribution and transition risks in their investment decision-making and engagement.

Timeline: EQ started adhering to these standards in 2020 and have committed to comply with these fully over the next 12-18 months.

Responsible Investment Process

ESG and sustainability characteristics are fully integrated into EQ’s fund research process.

ESG and engagement scoring

Current and potential investments with third party managers are evaluated by our fund analysts, including the approach of such managers to ESG analysis and engagement. The team use a proprietary questionnaire and interview managers to score separately for E, S, and G integration and engagement intentionality. Firm-wide and specific strategy level achievements are distinguished. This evaluation is completed by EQ’s sector specific fund analysts and is fully integrated into the fund selection process. There is no separate ESG team. ESG integration is one of the many factors that is considered by our fund analysts and influences third party manager conviction. However, any new fund is required to meet EQ’s ‘Minimum Sustainability Standards’ to pass the fund selection committee.

Baseline negative exclusions

Current and potential investments with third party managers are evaluated by our fund analystson their adherence to our baseline exclusions and any additional exclusions applied. We use external independent data to test and monitor this.

Positive impact and sustainability outcomes

EQ carries out an independent review of UN Sustainable Development Goal alignment of fund holdings, which includes positive and negative alignment. This allows fund analysts and portfolio managers to identify, track and set future targets for the sustainability outcomes of I EQ’s investments.

Where appropriate to the fund’s objectives, EQ carries out an in-depth assessment of the philosophy, policies, resources and processes in place to manage and maximise positive real world sustainability outcomes.

Climate change/net-zero

EQ aims to assess the climate change contribution of funds via carbon footprinting (Scope 1,2 and 3), and an assessment of the policies and processes in place to manage carbon risk and opportunity. EQ uses this information to align portfolios to low-carbon development pathways (1.5 degrees of warming or lower).

EQ’s responsible investment approach will evolve continuously as the industry’s approach evolves. Greater detail on EQ’s investment process, including the Responsible Investment approach for each portfolio strategy is available upon request.

Client sustainability preferences

While EQ believes ESG integration, baseline exclusions and responsible stewardship approaches are appropriate across our client base, different client sustainability preferences can be catered for.

EQ provide suitable sustainable portfolio solutions across the spectrum of capital, and are determined to provide these in an accessible manner (low starting capital, retail friendly).

Organisational governance

Responsibility for the annual review of and regular adherence to this policy lies with EQ’s Board, and in particular, with the Co-CEOs, Head of Investment Management and Head of Investing.

At an operational level, the Investment Management Committee which is made up of the most senior members of the investment team will take responsibility for EQ’s evolving approach to responsible investing. EQ has established a cross-functional Sustainability Oversight Committee to integrate responsible investment activities and corporate level sustainability initiatives and provide another layer of oversight to track the implementation of EQ’s investment sustainability standards.

It is acknowledged that EQ (and the rest of the asset management industry) is on a journey and that we should continually push for improvement in our practices and processes.

For details on our stewardship activity, please refer to our Stewardship Code.

This policy was approved by the Board on 30 March 2021.